Witchko v. Schorsch et al

Filing 314

ORDER: For the foregoing reasons and for the reasons discussed on the record at the final approval hearing, I award Derivative Counsel attorneys' fees in the amount of $7,500,000.00 and expenses in the amount of $548,267.00, to be paid by VEREIT in accordance with the terms of the Stipulation and Agreement of Settlement, ECF No. 287-1. (Signed by Judge Alvin K. Hellerstein on 4/6/2020) (rro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
JOANNE WITCHKO, Derivatively on Behalf of
:
Nominal Defendant AMERICAN REALTY
:
CAPITAL PROPERTIES, INC.,
:
:
Plaintiff,
:
-against:
:
NICHOLAS S. SCHORSCH, et al.,
:
:
Defendants,
:
:
-and:
:
AMERICAN REALTY CAPITAL PROPERTIES, :
INC.,
:
:
Nominal Defendant. :
:
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ORDER
15 Civ. 6043 (AKH)

ALVIN K. HELLERSTEIN, U.S.D.J.:
On January 21, 2020, I held a hearing at which I granted final approval of the
settlement in the above-captioned action (the “Derivative Action”). At that hearing, and during
continued proceedings on January 23, 2020, I also granted final approval of the settlement and
awarded attorneys’ fees and expenses in the coordinated action In re American Realty Capital
Properties, Inc. Litigation, No. 15mc40 (the “Class Action”). I deferred ruling on the motion for
attorneys’ fees and expenses in the Derivative Action to allow Plaintiffs’ counsel (“Derivative
Counsel”) to revise its time records and expense reports based on my guidance. I also allowed
Derivative Counsel and counsel for Nominal Defendant American Realty Capital Properties,
Inc., now known as VEREIT, Inc. (“VEREIT”), to submit supplemental briefing on the issue of
attorneys’ fees and expenses.
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Having received the supplemental submissions, I hold that Derivative Counsel is
entitled to payment of attorneys’ fees in the amount of $7,500,000 and reimbursement of
expenses in the amount of $548,267.
DISCUSSION
Maryland law allows counsel for a derivative plaintiff to recover attorneys’ fees
and expenses under the common fund doctrine. Garcia v. Foulger Pratt Dev., Inc., 845 A.2d 16,
31-33 (Md. Ct. Spec. App. 2003). In determining reasonable attorneys’ fees, I consider “(1) the
time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the
risk of the litigation; (4) the quality of representation; (5) the requested fee in relation to the
settlement; and (6) public policy considerations.” Goldberger v. Integrated Res., Inc., 209 F.3d
43, 50 (2d Cir. 2000); see also In re Pfizer Inc. S’holder Derivative Litig., 780 F. Supp. 2d 336,
343 (S.D.N.Y. 2011) (considering Goldberger factors in determining reasonableness of
attorneys’ fees awarded in derivative action brought under state law).
As an initial matter, I choose to award fees under the lodestar method.
“Attorney’s fees awarded pursuant to the common fund doctrine may be calculated using either a
percentage of the recovered benefit, the Lodestar approach . . . , or a combination of both.”
Garcia, 845 A.2d at 34. The lodestar method is more appropriate here because the value of the
settlement is not quantifiable 1 and relies in part on work performed in the Class Action.

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The primary benefit of the settlement of the Derivative Action is that individuals and entities other than VEREIT
(the “Non-VEREIT Defendants”) will pay $286.5 million out of their own pockets to settle the Class Action. In
other words, no cash payment will be made in this action, but VEREIT benefits from paying less than 100% of the
$1.025 billion settlement in the Class Action. VEREIT also benefits from the end of costly litigation and the release
of potential counterclaims against it. The Non-VEREIT Defendants stipulated that they would not have made any
contribution toward the Class Action settlement but for settlement of the Derivative Action. Even though the NonVEREIT Defendants insisted on a global settlement, I cannot conclude based on this bargaining position that the
Derivative Action is solely responsible for the Non-VEREIT Defendants’ $286.5 million payment in the Class
Action.

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As to the amount of attorneys’ fees, Derivative Counsel’s revised lodestar is
$10,501,488 for 16,766 hours of work across seven law firms. Derivative Counsel seeks
$15,752,232, which represents a multiplier of 1.5. Counsel for Nominal Defendant American
Realty Capital Properties, Inc., now known as VEREIT, Inc., argues that a fee award of
$6,000,000 would be sufficient.
Derivative Counsel strongly pursued this complex and risky action. They
survived dispositive motions and motions to stay; completed extensive discovery, which
involved 846,000 documents and thirty-five depositions; and reached a resolution that VEREIT,
under new leadership, accepted. Though Derivative Counsel benefited heavily from the work of
the Government and the parties in the Class Action, the legal claims in the Derivative Action
were distinct. The Derivative Action also drew focus to related-party transactions that allegedly
reflected waste and mismanagement.
On the other hand, the Derivative Action piggybacked on, and at times even
distracted from, the Class Action. Counsel in the Class Action spearheaded the global settlement
efforts. Furthermore, even based on the revised time records, Derivative Counsel billed for work
that was not proportional to the needs of the case. For example, Derivative Counsel billed
excessive time for background research, overstaffed depositions, and duplicated efforts between
law firms. I conclude that Derivative Counsel is entitled to $7,500,000, approximately 75% of
its lodestar.
At the final approval hearing, I indicated that some of the expenses for which
Derivative Counsel sought reimbursement were unreasonable. In its revised submissions,
Derivative Counsel removed certain expert consulting fees and charges for in-house

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administrative tasks. I accept the remaining expenses, totaling $548,267, as reasonable, and I
order that they should be reimbursed.

CONCLUSION
For the foregoing reasons and for the reasons discussed on the record at the final
approval hearing, I award Derivative Counsel attorneys' fees in the amount of $7,500,000.00 and
expenses in the amount of $548,267.00, to be paid by VEREIT in accordance with the terms of
the Stipulation and Agreement of Settlement, ECFNo. 287-1.
SO ORDERED.
Dated:

New York, New York
April 6, 2020
ALVIN K. HELLERSTEIN
United States District Judge

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